CULIACAN, Mexico, Feb 26 (Reuters) - More than a thousand people marched through the streets of the capital of captured Mexican drug lord Joaquin "Shorty" Guzman's home state on Wednesday, calling for his freedom.

The largely young crowd, many dressed in white, bore signs that read "We want Shorty Freed" and "We demand no extradition" as they filed across the center of Culiacan, in the northwestern state of Sinaloa, to a church on a palm tree-lined plaza.

Boys donned white t-shirts scrawled with messages written in marker pen in support for "El Chapo," his nickname in Spanish. Teenage girls in school uniform chanted "Chapo, Chapo."

"The government doesn't give any job opportunities," said Daniel Garcia, an unemployed 20-year-old. "The situation is, honestly, really difficult and he helps out the young people, giving them jobs."

Guzman, who rose from humble origins to become one of the most powerful drug barons in history, was captured on Saturday in a raid in the beachside resort and fishing center of Mazatlan, 125 miles (200 km) southeast of Culiacan.

President Enrique Pena Nieto said on Wednesday there would be no swift extradition to the United States for Guzman, citing the fact he still faces an outstanding prison term after staging a jailbreak in 2001, reportedly in a laundry cart.

Guzman and his Sinaloa cartel are suspected of shipping billions of dollars worth of cocaine, methamphetamine, heroin and marijuana north across the border into the United States.

Some in the crowd credited Guzman and his gang for keeping the city free of the extortions and kidnappings that plague other parts of Mexico, where rival gangs reign. One printed sign said: "We respect El Chapo more than any elected official."

Although security officials blamed the Sinaloa cartel for thousands of killings in the gang violence that has rocked Mexico over the past decade, Guzman's outfit were seen by many as less of a threat to the public than their bloodiest rivals.

The march took on a festive mood as the demonstrators walked to the city's central Cathedral.

Brass bands played songs known to be favorites of Guzman, Mexico's most wanted man and Chicago's first public enemy No. 1 since notorious mobster Al Capone. One woman carried a banner than read "Chapo, give me a child."

It was unclear exactly who had organized the march. At the start, young men handed out white t-shirts and professionally printed banners.

Other youths in pickup trucks, their faces masked by bandanas, handed out water and corn-meal tamales once the crowd reached the end of their march route.

Flyers advertising the march had been distributed in the city earlier in the day and many residents thought it was a joke. Political marches are common in Mexico, but not demonstrations in favor of wanted drug kingpins.

"This is amazing," said Rosa, 40, a lab analyst who declined to give her last name, as she watched from the sidewalk amid the crowds of shoppers and people getting off work. "It is true what they say, there is no violence and no extortion."

Still, the festive scene soured after city police waded into the crowd. As officers were surrounded by jeering demonstrators, the situation turned tense, and many began to run away as police doused the crowd with pepper spray. (Reporting by Michael O'Boyle; Editing by Simon Gardner and Janet Lawrence)